Turkey introduces updated geothermal energy feed-in-tariff rates
Turkey announces new tariffs under its renewable energy feed-in-tariff scheme YEKDEM. With that the tariffs for geothermal drop by around 36%, expectations were clearly higher.
Within the framework of the Presidential Decree published in the Official Gazette on January 30, 2021, Turkey has finally shared details on prices and times to be applied for electricity generation facilities based on renewable energy sources, including geothermal. This announcement has been luring and now finally announced.
The announcement on the new Renewable Energy Resources Support Mechanism (YEKDEM) in Turkey, changes the current scheme that has been credited with the incredible growth of Turkey’s geothermal sector.
According to the new mechanism, a purchase guarantee of TL 54 kurus/ kWh will be applied for 10 years for Renewable Energy Resources (RES) certified production facilities that will be operational from 01.07.2021 until 31.12.2025.
Support for domestic equipment contribution will be provided for 5 years at a price of TL 8 TL/ kWh.
According to the new YEKDEM, a currency update will be performed every three months. The upper limit for updating cannot exceed the equivalent of “Turkish Lira kurus / kWh” calculated using the average value of daily US dollar buying rates published by the Central Bank. The upper limit determined for geothermal was announced as USD 0.0860/ kWh.
The previous feed-in-tariff system had set a tariff of USD 0.105/ kWh plus a “made in Turkey”-bonus of up to USD 0.027/ kWh for a total maximum tariff of USD 0.132/ kWh. All those tariffs were denominated in USD which made it particularly attractive as it allowed the operators to be more secure against currency fluctuation. This was particularly valuable due to the drop in the value of the Turkish lira over recent years.
Summary of the tariff (currency rate as of January 28, 2021 per year):
- Price of RES Supporting Mechanism, TL kurus/kWh: 54 TL/ kWh (around USD 0.0732/ kWh) for 10 years
- Domestic manufacturing contribution share, TL kurus/kWh: 8 TL/ kWh (around USD 0.0108/ kWh) for 5 years
In our observations there are two key elements that stick out in the new tariffs. Tariffs have been reduced for all renewable energy sources, with biomass and solar dropping by more than 70%, wind by around 50%, and geothermal by around 36%. Hydropower dropped the least at around 32%. These are based on the maximum of annual tariffs to be achieved, including the domestic manufactured equipment bonus. Industry expectations were at around USD 0.10/ kWh, so the current maximum tariff of USD 0.084/ kWh clearly will leave disappointment by developers, operators and investors.
We assume that these tariffs will be disappointing for investors and those operators that do not manage to get their plants online prior to new tariffs starting at July 1, 2021. One of the key advantages of the USD denomination is also gone, while the tie-in with the USD still provides some stability. If those new tariffs though will be sufficient to keep momentum in geothermal development in Turkey remains to be seen.
On behalf of the Geothermal Power Plant Investors Association (JESDER), Ufuk ?entürk, Chairman of the Board, announced his thoughts and opinions about the new YEKDEM through a press text:
“We think that YEKDEM prices [now announced] are very important in terms of eliminating uncertainties and initiating re-investments in Renewable Energy investments and Geothermal Energy Sector.”
Yet at the same time, the new YEKDEM tariffs are seen as problematic in the context of geothermal. It does not address the nature of geothermal plants that can also be hybrid power plants law providing not only electricity but also heat. There are also industry demands from Turkey’s Ministry of Energy to make a positive contribution in terms of meeting the internal consumption of the power plants by revising the hybrid power plants legislation in line with the industry opinions.
Within the framework of the support mechanism of local equipment, it is essential to include secondary investments such as Greenhouse, City heating and Fruit and Vegetable Drying facilities in the scope of support, so a release by JESDER.